BL: Japan Cross-Shareholdings Send Investor Losses to $3.2 Billion
By Patrick Rial
May 26 (Bloomberg) -- Japanese companies cost stockholders $3.2 billion with money-losing investments in each other's shares last fiscal year, according to Nomura Holdings Inc.
This year, 130 companies posted securities losses, up from 13 in the same period of 2007, after the Topix index fell 29 percent in the 12 months ended March 31, according to Tokyo Stock Exchange filings. Mitsui & Co., Japan's second-largest trading company, lost $354 million on stockholdings and missed its profit forecast. Mobile phone retailer Hikari Tsushin lost $220 million from a slump in its stake in consumer lender SFCG Co.
Cross-shareholding, which started in the 19th century with the zaibatsu holding groups, are used these days to cement strategic relationships and defend against hostile takeovers, according to Kengo Nishiyama, a strategist at Nomura in Tokyo who compiled the losses.
``Companies involved in long-term cross shareholdings are taking body blows,'' said Taku Yamamoto, who helps oversee about $107 billion in assets at the Pension Fund Association in Tokyo. ``We'd like companies to explain their intentions regarding cross holdings, and if there aren't any clear merits then we don't want such moves.''
Last fiscal year, 273 of the 1,722 companies on the first section of the Tokyo exchange fell more than 50 percent, and 947 stocks dropped by 30 percent or more, according to data compiled by Bloomberg. The Topix lost 12 percent in 2007 after four years of gains and is down 6.7 percent this year.
`Dark Ages'
Japanese companies are required by regulators to report losses when the shares they've bought drop by 50 percent from the average purchase price, or if they fall by 30 percent and the company holding the stock forecasts prices won't recover.
``Cross shareholding writedowns do hit the bottom line, so it's not something to be ignored,'' said John Vail, who helps oversee about $8.4 billion as head of global strategy at Nikko Asset Management Co. ``That's a trend that we thought was behind us, but there are a few companies in Japan that are looking back to the dark ages.''
Companies typically buy stock of one another on the open market or through new share issues, with an implied agreement not to use voting rights to oppose management.
Zaibatsu such as Mitsubishi, Mitsui and Sumitomo developed Japan's economy with subsidiary companies in the group owning stakes in each other while a bank stood at the center to provide financing.
Mitsui, which imports food and clothing and trades commodities, started acquiring a stake in Seven & I Holdings Co. in 2005 and now owns 1.7 percent of Japan's largest retailer, according to company filings. Tokyo-based Seven & I fell 23 percent in the last fiscal year.
Signal to Sell
Mitsui fell as much as 3.1 percent on May 2 after announcing full year earnings, including the loss on stocks. The Tokyo-based company missed its net income forecast by about 10 billion yen ($96 million) for the year.
Investors often take cross-shareholding announcements as a signal to sell the stock, Nomura's Nishiyama said. Yokohama Rubber Co. dropped 4.5 percent when Zeon Corp., a maker of synthetic rubber, said in February it raised its stake in the company.
``The irony is that companies do cross holdings to prevent takeovers, but as that can cause their stock prices to fall, it may make a buyout attempt more likely,'' Nishiyama said.
Tokyo-based Hikari Tsushin Inc. reported a loss March 31 on its 13 percent stake in SFCG, which tumbled 49 percent last fiscal year and lost as much as 90 percent of its value from a record high set in 1999. Hikari fell 4.5 percent the next day.
Sky Perfect JSAT Corp., a satellite television provider 6.1 percent-owned by Nippon Television Network Corp., with headquarters in Tokyo, slumped 40 percent between its listing in April 2007 and March 31. Nippon Television said on March 24 the company intended to write down its stake in the satellite television provider, helping send Nippon shares 1.8 percent lower the following day.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
Last Updated: May 25, 2008 11:01 EDT
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